SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1994 Commission File Number 1-1687
PPG INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0730780
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One PPG Place, Pittsburgh, Pennsylvania 15272
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (412) 434-3131
As of July 31, 1994, 212,581,107 shares of the Registrant's common stock, par
value $1.66-2/3 per share, were outstanding.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
PPG INDUSTRIES, INC.
AND CONSOLIDATED SUBSIDIARIES
=============================
Index
Part I. Financial Information Page(s)
Item 1. Financial Statements:
Condensed Statement of Operations................................ 2 - 3
Condensed Balance Sheet.......................................... 4
Condensed Statement of Cash Flows................................ 5
Notes to Condensed Financial Statements.......................... 6 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 10 - 16
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K.......................... 17
Signature............................................................ 18
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Statement of Operations (Unaudited)
Three Months Six Months
Ended June 30 Ended June 30
1994 1993 1994 1993
(Millions)
Net sales..................... $1,619.3 $1,523.6 $3,096.2 $2,970.3
Cost of sales................. 987.9 965.8 1,899.7 1,879.8
Gross profit................ 631.4 557.8 1,196.5 1,090.5
Other expenses:
Selling, general and
administrative............ 223.4 223.4 439.5 440.9
Depreciation................ 79.0 84.0 157.5 168.6
Research and development.... 54.5 50.7 103.4 101.0
Interest.................... 22.4 25.4 44.2 53.4
Other charges............... 28.5 15.1 43.6 36.1
Business divestitures
and realignments (Note 4). 85.0 .7 85.0 1.4
Total other expenses.......... 492.8 399.3 873.2 801.4
Other earnings................ 22.6 26.0 47.5 82.3
Income before income taxes
and minority interest....... 161.2 184.5 370.8 371.4
Income taxes.................. 60.9 73.8 144.7 148.5
Minority interest............. 4.1 4.5 8.0 6.6
Income before cumulative
effect of accounting
changes..................... 96.2 106.2 218.1 216.3
Cumulative effect of
accounting changes (Note 2):
Other postretirement and
postemployment bene-
fits, net of income
taxes of $231.9 million. -- -- -- (363.2)
Income taxes.............. -- -- -- 90.4
Net income (loss)............. $ 96.2 $ 106.2 $ 218.1 $ (56.5)
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PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Statement of Operations (Unaudited)
(Continued)
Three Months Six Months
Ended June 30 Ended June 30
1994 1993 1994 1993
Earnings (loss) per share:
Income before cumulative
effect of accounting
changes................... $ 0.46 $ 0.50 $ 1.03 $ 1.02
Cumulative effect of
accounting changes:
Other postretirement
and postemployment
benefits.............. -- -- -- (1.71)
Income taxes............ -- -- -- 0.42
Earnings (loss) per share... $ 0.46 $ 0.50 $ 1.03 $ (0.27)
Dividends per share (after
giving retroactive effect
to 100% stock distribution,
Note 6)..................... $ 0.28 $ 0.25 $ 0.55 $ 0.50
Average shares outstanding
(after giving retroactive
effect to 100% stock
distribution, in millions,
Note 6)..................... 212.4 212.4 212.7 212.4
The accompanying notes to condensed financial statements are an integral part
of this statement.
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PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Balance Sheet (Unaudited)
June 30 Dec. 31
1994 1993
(Millions)
Assets
Current assets:
Cash and cash equivalents................... $ 52.5 $ 111.9
Receivables-net............................. 1,294.8 996.7
Inventories (Note 3)........................ 694.5 683.3
Other....................................... 221.1 234.0
Total current assets...................... 2,262.9 2,025.9
Property (less accumulated depreciation of
$3,340.7 million and $3,254.6 million)...... 2,735.7 2,787.3
Investments................................... 303.3 264.5
Other assets.................................. 523.0 573.8
Total..................................... $5,824.9 $5,651.5
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings and obligations
under capital leases...................... $ 381.0 $ 355.1
Accounts payable and accrued liabilities.... 989.4 921.2
Income taxes................................ 0.1 4.7
Total current liabilities................. 1,370.5 1,281.0
Long-term debt and obligations under
capital leases.............................. 769.1 774.0
Deferred income taxes......................... 272.0 268.6
Accumulated provisions........................ 262.1 282.5
Other postretirement benefits (Note 2)........ 518.3 520.4
Minority interest............................. 59.6 51.9
Total liabilities......................... 3,251.6 3,178.4
Shareholders' equity:
Common stock (Note 6)....................... 484.3 242.1
Additional paid-in capital (Note 6)......... 66.8 297.5
Retained earnings........................... 3,539.7 3,436.8
Treasury stock.............................. (1,282.6) (1,224.7)
Unearned compensation....................... (184.2) (182.5)
Minimum pension liability adjustment........ (36.2) (36.1)
Currency translation adjustment............. (14.5) (60.0)
Total shareholders' equity................ 2,573.3 2,473.1
Total..................................... $5,824.9 $5,651.5
The accompanying notes to condensed financial statements are an integral part
of this statement.
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PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Statement of Cash Flows (Unaudited)
Six Months Ended June 30
1994 1993
(Millions)
Cash from operations......................... $ 241.0 $ 248.3
Investing activities:
Capital spending.......................... (136.8) (170.4)
Other..................................... 9.0 41.0
Cash used for investing activities... (127.8) (129.4)
Financing activities:
Net change in borrowings with
maturities of three months or less...... 9.3 155.5
Proceeds from other short-term debt....... 19.1 3.4
Repayment of other short-term debt........ (12.6) (9.4)
Proceeds from long-term debt.............. 3.8 6.1
Repayment of long-term debt and capital
leases.................................. (18.7) (170.1)
Loans to employee stock ownership plan.... (11.0) --
Repayment of loans by employee stock
ownership plan.......................... 9.3 12.8
Purchase of treasury stock, net........... (56.7) (18.3)
Dividends paid............................ (116.9) (106.2)
Cash provided by
financing activities............... (174.4) (126.2)
Effect of currency exchange rate changes
on cash and cash equivalents............... 1.8 (.2)
Net decrease in cash
and cash equivalents....................... (59.4) (7.5)
Cash and cash equivalents,
beginning of period........................ 111.9 61.4
Cash and cash equivalents,
end of period.............................. $ 52.5 $ 53.9
The accompanying notes to condensed financial statements are an integral part
of this statement.
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PPG INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements (Unaudited)
1. Financial Statements
The condensed financial statements included herein are unaudited. In
the opinion of management, these statements include all adjustments,
consisting only of normal, recurring adjustments, necessary for a fair
presentation of the financial position of PPG Industries, Inc. and
consolidated subsidiaries (the Company or PPG) at June 30, 1994, and the
results of their operations for the three- and six-month periods ended
June 30, 1994 and 1993 and their cash flows for the six-month periods
ended June 30, 1994 and 1993. These condensed financial statements
should be read in conjunction with the financial statements and notes
thereto included in PPG's Annual Report on Form 10-K for the year ended
December 31, 1993.
The results of operations for the six months ended June 30, 1994 are not
necessarily indicative of the results to be expected for the full year.
2. Changes in Methods of Accounting
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This standard requires
accrual, during the years that the employee renders the necessary
services, of the expected cost of providing postretirement benefits to
an employee and the employee's covered dependents. The Company's
previous practice was to recognize these costs as benefits were paid.
PPG elected to recognize immediately the cumulative effect of this
accounting change, which resulted in an after-tax charge of
$357.1 million (including $6.4 million for an equity affiliate) in 1993.
The incremental after-tax impact of accruing the cost of these
postretirement benefits for 1993 was not material.
The Company also adopted SFAS No. 109, "Accounting for Income Taxes,"
effective January 1, 1993. This standard requires an asset and
liability approach to accounting for income taxes. Deferred income tax
liabilities and assets reflect the tax effects of (1) temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes and (2) operating loss and tax credit carryforwards. Deferred
income tax assets, such as benefits related to net operating loss
carryforwards, are recognized to the extent that realization of such
benefits is more likely than not. Changes in enacted tax rates or laws
result in adjustments to the recorded deferred income tax assets and
liabilities in the period that the tax law is enacted.
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The $90.4 million cumulative effect of this accounting change as of
January 1, 1993 was credited to income in 1993. The effect of the
accounting change on 1993 net income, exclusive of the cumulative effect
as of January 1, 1993, was not material. Previously, the Company
applied the deferral method specified in Accounting Principles Board
Opinion No. 11 to provide for deferred income taxes with respect to
timing differences between the recognition of income and expense items
for financial reporting purposes and income tax purposes.
Effective January 1, 1993, the Company also adopted the provisions of
SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This
standard requires an accrual method of recognizing the cost of
postemployment benefits, such as disability, severance and workers'
compensation benefits. Since the Company previously accounted for most
of these benefits on an accrual basis, the cumulative after-tax charge
as of January 1, 1993, of the accounting change was only $6.1 million.
The incremental after-tax impact of accruing the cost of these benefits
for 1993 was not material.
3. Inventories
Inventories at June 30, 1994, and December 31, 1993, are detailed below.
June 30 Dec. 31
1994 1993
(Millions)
Finished products and work in process............ $460.6 $451.8
Raw materials.................................... 119.6 117.5
Supplies......................................... 114.3 114.0
Total.......................................... $694.5 $683.3
Most domestic and certain foreign inventories are valued using the last-
in, first-out method. If the first-in, first-out method had been used,
inventories would have been $207.6 million and $210.1 million higher at
June 30, 1994 and December 31, 1993, respectively.
4. Business Divestitures and Realignments
The impact of the Company's continuing programs to divest or realign
businesses and activities not meeting strategic or performance
objectives is reflected in PPG's 1994 and 1993 results. The related
charge for 1994 shown in the condensed statement of operations pertains
to the divestiture of the Biomedical Systems Division and the charges
for 1993 six-month results pertain principally to the coatings and
resins segment. Refer to Management's Discussion and Analysis of
Financial Condition and Results of Operations for further details
regarding these charges.
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5. Cash Flow Information
Cash payments for interest for the six months ended June 30, 1994 and
1993 were $49.9 million and $60.6 million, respectively. Cash payments
for income taxes for the six months ended June 30, 1994 and 1993 were
$143.9 million and $142.0 million, respectively.
6. Stock Split
On April 21, 1994, the Board of Directors approved a two-for-one stock
split in the form of a 100% stock distribution. The distribution was
made on June 10, 1994, to shareholders of record as of May 10, 1994.
Share and per share data give retroactive effect to the stock split.
7. Business Segment Information
Three Months Six Months
Ended June 30 Ended June 30
1994 1993 1994 1993
(Millions)
Net Sales
Coatings and Resins $ 695 $ 615 $1,316 $1,188
Glass 617 575 1,185 1,126
Chemicals 307 291 595 573
Other -- 42 -- 83
Total $1,619 $1,523 $3,096 $2,970
Operating Earnings
Coatings and Resins $ 143 $ 121 $ 267 $ 220
Glass 93 55 169 111
Chemicals 35 38 71 81
Other (1) (84) (5) (81) (9)
Total operating
income 187 209 426 403
Interest - net (20) (22) (40) (47)
Other unallocated corporate
(expense) income - net (6) (3) (15) 15
Income before income taxes
and minority interest $ 161 $ 184 $ 371 $ 371
<FN>
(1) Included in this segment's 1994 operating income
was an $85 million divestment charge to exit the
Biomedical Systems Division (see Note 4).
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8. Environmental Matters
Management of the Company currently does not anticipate that the
resolution of the environmental contingencies detailed below, which will
occur over an extended period of time, will result in the Company
recording future annual charges to income that are significantly greater
than those recorded in recent years. It is possible, however, that
technological, regulatory and enforcement developments, the results of
environmental studies and other factors, could alter this expectation.
In management's opinion, the Company operates in an environmentally
sound manner and the outcome of these environmental matters will not
have a material effect on PPG's financial position or liquidity. To
date, compliance with Federal, state and local requirements has not had
a material impact on PPG's financial position, results of operations or
liquidity.
It is PPG's policy to accrue expenses for environmental contingencies
when it is probable that a liability exists and the amount of loss can
be reasonably estimated. As of June 30, 1994 and December 31, 1993, PPG
had environmental reserves totaling $84 million and $90 million,
respectively. Charges against income for environmental remediation
costs for the six month periods ended June 30, 1994 and 1993 were
$13 million and $9 million, respectively.
In addition to the amounts accrued, the Company may be subject to
contingencies related to environmental matters estimated at the high end
to be as much as $200 million to $400 million. Such aggregate losses
are reasonably possible but not currently considered to be probable of
occurrence. These contingencies include significant unresolved issues
including the nature and extent of contamination, if any, at sites and
the methods that may have to be employed should remediation be required.
At certain waste sites, the financial condition of any other potentially
responsible parties also contributes to the uncertainty of estimating
PPG's final costs. Although contributors of waste to sites involving
other potentially responsible parties may face governmental agency
assertions of joint and several liability, in general, final allocations
of costs are made based on the relative contributions of wastes to such
sites. PPG is generally not a major contributor to such sites. The
extent to which costs incurred are recoverable from insurance companies
is also a factor in determining PPG's ultimate cost. Although the
unrecorded exposure to future loss relates to all sites, a significant
portion of such unrecorded exposure involves three operating plant sites
and one closed plant site. Two of the sites are in the early stages of
study while the remaining two are further into the study phase. All
four sites require further study in order to assess the magnitude of
contamination, if any, and the viable remediation alternatives. It is
expected that the Company's environmental contingencies will be resolved
over a period of 20 years or more.
- 9 -
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Performance in the Second Quarter of 1994 Compared to the Second Quarter of
1993
Performance Overview
Sales for the second quarter of 1994 and 1993 were $1.62 billion and
$1.52 billion, respectively. Higher volumes in each of the business segments,
including sales from the January 1994 acquisition of Akzo's European original
equipment auto coatings business, more than offset the absence of sales in
1994 from the Biomedicals Systems Division and glass businesses which were
divested or discontinued, or are expected to be divested or discontinued
within the next six months. The unfavorable effect of translating European
currencies, and lower overall prices in the Chemicals segment, negatively
impacted sales.
The gross profit percentage increased to 39.0% from 36.6% in the prior year's
quarter. Contributing factors to the improvement were lower manufacturing
costs, sales mix gains, and benefits from divested and discontinued businesses
and businesses to be divested or discontinued. Lower overall sales prices in
the Chemicals segment and the negative effects of inflation partly offset
these gains.
On April 21, 1994, the Board of Directors approved a two-for-one stock split
in the form of a 100% stock distribution. The distribution was made on
June 10, 1994 to shareholders of record on May 10, 1994. Share and per share
data give retroactive effect to the stock split.
Net income and earnings per share for the quarter were $96.2 million and
$0.46, respectively. In the second quarter of 1993, net income and earnings
per share were $106.2 million and $0.50, respectively. Included in the
current period results was a $52 million after-tax charge related to the
divestment of the Company's Biomedical Systems Division. Higher environmental
study costs and charges related to the relocation of an administrative office
also negatively impacted earnings. Partially offsetting these charges were
the factors that contributed to the gross profit percentage improvement,
higher sales volumes, and lower income tax expense principally as a result of
the lower amount of income before income taxes and minority interest.
Performance of Business Segments
Coatings and resins sales increased to $695 million from $615 million for the
second quarter of 1993. Operating earnings for the corresponding periods were
$143 million and $121 million, respectively. Contributing to the sales
increase were higher volumes for most of the segment's major product lines,
including sales from the January 1994 acquisition of the Akzo coatings
business and slightly higher overall prices, principally from refinish
coatings. The unfavorable effect of translating European currencies partially
offset these sales gains. The increase in operating earnings was attributable
- 10 -
to the factors that contributed to the higher sales as well as benefits from
manufacturing efficiencies. Higher overhead costs partly offset these
improvements.
Glass sales increased to $617 million in the second quarter of 1994 from
$575 million in the prior year period. Operating income increased to
$93 million from $55 million in the corresponding prior period. Higher
volumes in each of the segment's major businesses and higher sales prices for
North American flat and automotive replacement glass and fiber glass
reinforcements contributed to the sales increase. The absence of sales from
divested and discontinued businesses, the unfavorable effects of translating
European currencies, and reduced prices for North American automotive original
and European flat glass and fiber glass reinforcement products partially
offset these improvements. The increase in operating earnings was principally
the result of benefits from manufacturing efficiencies, the absence of
operating losses from divested and discontinued businesses, and the factors
that contributed to the sales increase. The negative effects of inflation
partially offset these improvements.
Chemical sales increased to $307 million from $291 million in the second
quarter of 1993 while operating earnings declined to $35 million from
$38 million for the corresponding prior period. The increase in sales is
primarily attributable to higher volumes for most chlor-alkali and specialty
chemical products and increased chlorine prices. Significantly offsetting
these improvements were lower caustic soda and chlorine derivative prices.
The lower operating earnings were the result of lower overall sales prices,
higher environmental study costs, and the unfavorable effects of inflation,
offset in part by the higher sales volumes and manufacturing efficiencies.
Included in the "other" segment's operating income was an $85 million charge
related to the divestment of the Biomedical Systems Division. Because of the
general decline in health care and related markets, and other uncertainties,
disposition of the remaining assets of this division may not occur within one
year of the Company's original decision to divest it. The majority of the
charge was comprised of the reversal of a $60 million gain originally
anticipated from divestiture of its sensors business at the time the decision
was made to dispose of the division. Also, a $13 million charge was taken for
additional operating losses anticipated through the expected disposal date
resulting from such date being extended as well as actual operating losses
exceeding those originally estimated. Any gains on sales of the remaining
assets will be recognized in the period in which they occur.
With the exception of the charge recorded in the second quarter of 1994
related to the disposition of the Biomedicals Systems Division discussed
above, there have not been significant changes in the Company's plans for
implementing business divestiture and realignment programs undertaken in prior
years.
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Performance in the First Six Months of 1994 Compared to the First Six Months
of 1993
Performance Overview
Sales for the first six months of 1994 and 1993 were $3.1 billion and
$3.0 billion, respectively. Higher volumes in each of the business segments
more than offset the absence of sales in 1994 from the Biomedicals Systems
Division and glass businesses which were divested or discontinued, or are
expected to be divested or discontinued within the next six months. The
unfavorable effect of translating European currencies, and lower overall
prices in the Chemicals segment, negatively impacted sales.
The gross profit percentage increased to 38.6% from 36.7% in the prior year's
quarter. Contributing factors to the improvement were lower manufacturing
costs, sales mix gains, and benefits from divested and discontinued businesses
and businesses to be divested or discontinued. Lower overall sales prices in
the Chemicals segment and the negative effects of inflation partly offset
these gains.
Net income and earnings per share for the current year period were
$218.1 million and $1.03, respectively. In the prior year period, the Company
experienced a net loss and loss per share of $56.5 million and $0.27,
respectively. The prior year amounts included a net charge of $272.8 million
or $1.29 per share for three accounting changes (see Note 2 to the condensed
financial statements). Also included was an 8 cent per share gain from the
sale of our interest in an insurance company. Current period earnings were
favorably impacted by the factors that contributed to the gross profit
percentage improvement, higher sales volumes, and lower interest expense.
Partly offsetting these gains was the $52 million after-tax charge related to
the exit of the Biomedical Systems Division and the recording of a charge for
relocation of an administrative office.
Performance of Business Segments
Coatings and resins sales increased to $1.32 billion from $1.19 billion for
the first six months of 1993. Operating earnings for the corresponding
periods were $267 million and $220 million, respectively. Contributing to the
sales increase were higher volumes for each of the segment's major product
lines, including sales from the January 1994 acquisition of the Akzo coatings
business and slightly higher overall prices, principally from refinish
coatings. The unfavorable effect of translating European currencies partially
offset these sales gains. The increase in operating earnings was attributable
to the factors that contributed to the higher sales as well as benefits from
manufacturing efficiencies. Higher overhead costs partly offset these
improvements.
Glass sales increased to $1.19 billion in the six-month period ended June 30,
1994, from $1.13 billion in the prior year period. Operating income increased
to $169 million from $111 million in the corresponding prior period. Higher
volumes in each of the segment's major businesses and higher sales prices for
North American flat and automotive replacement glass and fiber glass
- 12 -
reinforcements contributed to the sales increase. The absence of sales from
divested and discontinued businesses, the unfavorable effects of translating
European currencies, and reduced prices for North American automotive original
and European fiber glass reinforcement and flat glass products offset these
improvements. The operating earnings improvement was principally the result
of improved volumes, manufacturing efficiencies, and the absence of operating
losses from certain businesses being divested or discontinued.
Chemical sales increased to $595 million from $573 million for the six-month
period ended June 30, 1993, while operating earnings declined to $71 million
from $81 million for the corresponding prior period. The increase in sales is
primarily attributable to higher volumes for most chlor-alkali, chlorine
derivative, and specialty chemical products. Significantly offsetting these
improvements were lower chlor-alkali prices. The lower operating earnings
were the result of lower chlor-alkali sales prices, higher environmental
remediation costs, and the negative effects of inflation, offset in part by
the higher sales volumes and manufacturing efficiencies.
As discussed above, included in the "other" segment's operating income was an
$85 million charge related to the divestment of the Biomedical Systems
Division.
Other Factors
The decline in interest expense was the result of lower average borrowings and
interest rates for the second quarter of 1994 and six-month period ended
June 30, 1994, as compared with the corresponding periods in 1993.
Higher other charges for the second quarter of 1994 was principally the result
of higher environmental study costs and charges incurred for the relocation of
an administrative office.
Lower other earnings and the change in other unallocated corporate (expense)
income - net for the six-month period ended June 30, 1994, were principally
the result of the absence of the gain from the sale of our interest in an
insurance company, which occurred in the first quarter of 1993.
The increase in accounts receivable is principally the result of higher sales
in June 1994 as compared with those in December 1993 as well as a seasonal
granting of extended credit terms to customers.
The decline in accumulated provisions and other assets is principally
attributable to the sale of the European portion of our Biomedical Systems
Division.
Environmental Matters
Management of the Company currently does not anticipate that the resolution of
the environmental contingencies detailed below, which will occur over an
extended period of time, will result in the Company recording future annual
charges to income that are significantly greater than those recorded in recent
years. It is possible, however, that technological, regulatory and
- 13 -
enforcement developments, the results of environmental studies and other
factors, could alter this expectation. In management's opinion, the Company
operates in an environmentally sound manner and the outcome of these
environmental matters will not have a material effect on PPG's financial
position or liquidity. To date, compliance with Federal, state and local
requirements has not had a material impact on PPG's financial position,
results of operations or liquidity.
It is PPG's policy to accrue expenses for environmental contingencies when it
is probable that a liability exists and the amount of loss can be reasonably
estimated. As of June 30, 1994 and December 31, 1993, PPG had environmental
reserves totaling $84 million and $90 million, respectively. Charges against
income for environmental remediation costs for the six month periods ended
June 30, 1994 and 1993 were $13 million and $9 million, respectively.
In addition to the amounts accrued, the Company may be subject to
contingencies related to environmental matters estimated at the high end to be
as much as $200 million to $400 million. Such aggregate losses are reasonably
possible but not currently considered to be probable of occurrence. These
contingencies include significant unresolved issues including the nature and
extent of contamination, if any, at sites and the methods that may have to be
employed should remediation be required. At certain waste sites, the
financial condition of any other potentially responsible parties also
contributes to the uncertainty of estimating PPG's final costs. Although
contributors of waste to sites involving other potentially responsible parties
may face governmental agency assertions of joint and several liability, in
general, final allocations of costs are made based on the relative
contributions of wastes to such sites. PPG is generally not a major
contributor to such sites. The extent to which costs incurred are recoverable
from insurance companies is also a factor in determining PPG's ultimate cost.
Although the unrecorded exposure to future loss relates to all sites, a
significant portion of such unrecorded exposure involves three operating plant
sites and one closed plant site. Two of the sites are in the early stages of
study while the remaining two are further into the study phase. All four
sites require further study in order to assess the magnitude of contamination,
if any, and the viable remediation alternatives. It is expected that the
Company's environmental contingencies will be resolved over a period of 20
years or more.
Foreign Currency and Interest Rate Risk
As a multinational company, PPG is concerned with, and therefore manages, its
transaction exposure to foreign currency risk. Its objective in managing this
risk is to minimize the volatility of cash flows due to currency fluctuations.
The Company manages its foreign currency exposures principally through the
purchase of forward and option contracts. It does not manage its exposure to
translation gains and losses; however, by borrowing in local currencies it
reduces such exposure. The market value of the forward and option contracts
purchased and outstanding as of June 30, 1994, was not material.
- 14 -
The Company manages its interest rate risk in order to balance its exposure
between fixed and variable rates while attempting to minimize its interest
costs. PPG principally manages its interest rate risk by means of retiring
and issuing debt from time to time. To a limited extent, PPG manages its
interest rate risk through the purchase of interest rate swaps. As of
December 31, 1993 and June 30, 1994 the notional principal amounts and fair
values of interest rate swaps held were immaterial.
PPG's policies do not permit active trading of currency or interest rate
derivatives.
Additional Business Divestiture and Realignment Detail
1991 Business Divestitures and Realignments
In 1991, the Company recorded business divestiture and realignment charges
totaling $84 million. Of the charges, $68 million related to the glass
segment, $13 million related to the coatings and resins segment, $2 million
related to the chemicals segment and $1 million related to the "other"
segment.
Of the glass segment charges, approximately $42 million was recorded to write
down certain assets at two plants to reflect the segment's inability to
recover the carrying value of such impaired assets. A $12 million charge was
also taken with respect to the idling of these facilities, for a period of
approximately 3 years, due to overcapacity in the North American flat glass
industry and the lack of demand for glass products produced at those plants.
These actions were taken in response to results from internal and external
studies which analyzed the performance aspect of these facilities and a
related impairment analysis, which were completed in the first quarter of
1991. The remainder of the charges relate principally to a work force
reduction program which was initiated to streamline the segment's flat glass
organization.
The charge recorded by the coatings and resins segment principally related to
streamlining of each of its operations throughout North America and
reorganization of the North American architectural finishes business.
In addition to the $42 million impairment charge, the provisions recorded were
principally comprised of severance costs totaling $38 million and the cost of
long-term contractual obligations principally related to the two glass
facilities during the period they were idle of $7 million.
1993 Business Divestitures and Realignments
In 1993, the Company recorded business divestiture and realignment charges
totaling $126 million. Of these charges, $78 million related to the glass
segment, $38 million related to the "other" segment involving our Biomedicals
Systems Division and $5 million each related to the coatings and resins and
the chemicals segments.
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Of the glass segment's charges, approximately $71 million related to the shut-
down of two manufacturing facilities, the discontinuation of the commercial
products business, and the disposition of the architectural metals business.
One of the manufacturing facilities, which had previously been temporarily
idled, was permanently closed because management concluded that the market for
its products would not support operation of the facility. Management also
decided to close the second facility because of the segment's overcapacity for
the plant's manufactured products. Operating earnings could be increased
through the reallocation of its production to more efficient facilities. The
decision to exit the commercial products business was due principally to its
disappointing operating performance. The architectural metals business was
sold because it was not a core operation of the glass segment and it also
experienced unfavorable operating results.
Since the Company's acquisition of the Biomedicals Systems Division, it has
consistently reported disappointing operating results. Moreover, this
business had not blended well with PPG's other major segments and proved to be
difficult to manage under the continually changing business environment in
which it operated. As a result, management decided early in the fourth
quarter of 1993 to divest and a charge of $38 million was recorded in that
quarter. The charge was principally based on anticipated sales proceeds from
the divestiture of the sensors and medical electronics businesses of
approximately $65 million and $50 million, respectively. Such amounts
resulted in an estimated net loss of $5 million. In addition, $30 million of
operating losses were anticipated through the expected disposal date.
In addition to the components of the Biomedicals Systems Division provision
detailed above, significant components of the business divestiture and
realignment charges included charges for the retirement or write-off of
operating assets with net book values of approximately $31 million, severance
and benefit costs of $17 million, incremental workers' compensation accruals
of $10 million, environmental accruals of $9 million, anticipated future
operating losses of $6 million through the expected disposal dates for the
commercial products and architectural metals businesses, and charges of
approximately $2 million for the disposition of operating assets (net of
anticipated sales proceeds of $16 million).
The charges recorded in 1993 are expected to be recovered in the future to a
large extent through the absence of historical operating losses for the
Biomedical Systems Division. Such operating losses were approximately
$61 million, $13 million, and $23 million for 1993, 1992 and 1991,
respectively. In addition, future annual operating earnings are projected to
be positively impacted by approximately $10 million primarily as a result of
the elimination of various operating costs. With the exception of sales
proceeds expected in 1994 from the divestiture of the Biomedicals Systems
Division's sensors and medical electronics businesses, the cash flow effect of
these 1993 activities are not anticipated to be significant. Sales proceeds
received to date in 1994 have consisted of $5 million in cash plus $11 million
in securities and receivables.
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Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Computation of Earnings Per Share
(b) Reports on Form 8-K
The Company filed a Form 8-K on April 21, 1994. The report
indicated that on that date the registrant's Board of Directors
raised the registrant's quarterly dividend on its common stock to
56 cents per share and approved a two-for-one common stock split
in the form of a 100% stock distribution. The cash dividend and
stock distribution were made on June 10, 1994 to shareholders of
record as of May 10, 1994. The quarterly common stock
dividend was 28 cents per share on an after-split basis.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PPG INDUSTRIES, INC.
(Registrant)
Date: August 15, 1994 /s/ W. H. Hernandez
W. H. Hernandez
Vice President and Controller
(Acting Principal Financial and
Accounting Officer and
Duly Authorized Officer)
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PPG INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No. Description
11 Computation of Earnings (Loss) Per Share